Most people think of life insurance when considering a mortgage or providing financial support for their family. They want to ensure their loved ones can carry on paying the bills and maintain their lifestyle if they were to die unexpectedly. But whole of life insurance doesn’t have a fixed term or end date. It’s a guaranteed policy that pays out upon your death, no matter what ‘great age’ you live to.

When you take out a whole of life plan, you can pay monthly or annual premiums, and so long as you keep up with the payments, you will remain covered until your death. You can also choose a policy where you won’t have to pay any premiums after a certain age or set period, but it will still pay out the insured amount upon your death.

There are two main types of whole of life insurance:

• Balanced Cover – The cost of premiums is guaranteed to remain the same for the entire policy, regardless of your health, or age of death. When you die, a fixed cash sum, agreed upon when you first took on the policy, will be paid out.
• Maximum Cover – A maximum cover policy means that your monthly or annual premiums are placed in an investment fund – the aim being that the returns they generate will be enough to cover the eventual payout amount. Your insurer will manage the investment and check that it’s performing well enough – but if it’s not on track, they might suggest you increase your premiums or reduce your final payout.

Maximum cover policies are cheaper initially, but your premiums and payout are not guaranteed.

The cost of premiums is guaranteed to remain the same for the entire policy, regardless of your health, or age of death. When you die, a fixed cash sum, agreed upon when you first took on the policy, will be paid out.

Many people take out a whole of life insurance policy to help pay for their beneficiaries’ Inheritance Tax (IHT) bill.

When you die and leave money to your children, grandchildren or other relatives (other than your spouse or civil partner), they will have to pay 40% IHT on anything above the available ‘nil rate band’ – the threshold above which IHT will be payable. This could be anything between £325,000 and £1m, depending on the individual scenario.

If you take out a whole of life insurance policy and arrange to place the policy in a trust, your loved ones will be able to use the money, tax-free, to help pay the IHT bill.

For more on this see The benefits of placing your life insurance in a trust

You might still have a mortgage or other debts and want to ensure there is enough to settle them when you die. In which case, you could consider a joint whole of life policy, which provides cover for both you and your partner, and pays out upon the first death to protect the surviving partner.

Some people take out a smaller whole of life insurance policy to cover the cost of their funeral expenses, so their partner or children don’t have to.

As with all insurance policies, it’s essential to read the small print before taking out the insurance. You may find that some causes of death are not covered, and there might be other exclusions or limitations.

If in any doubt, seek help from an independent adviser. They will check the policy for any exclusions that may affect your ability to claim. You should also shop around to ensure you get the best deal.

Life insurance is there to protect the loved ones you leave behind. If your children are all financially independent, your partner is financially secure, and you don’t have any debts, you may decide not to buy a policy.

Death is a fact of life for all of us, and as such, a whole of life insurance policy is guaranteed to pay out. But because of that certainty, it is expensive – and if you live long enough, you may find you’ve paid more for the policy than the amount you get back.

There are several factors that can increase the cost of your policy, all of which are calculated based on the risk factors associated with your untimely death. These include your age, medical history and current health, occupation, lifestyle and the amount of cover you require.

But you should bear in mind that it’s an insurance policy, not an investment. So, if your death is likely to leave your loved ones struggling financially, it could be a price worth paying.

Whole of life insurance is just one way to protect your family financially and should be part of a broader strategy that considers your savings, investments, personal circumstances and goals for the future.

An Amber River financial planner will assess your needs, your family circumstances and the risks you face before recommending the most appropriate protection for you. And because all of our advisers are independent, they will search the entire market to find the best-value products that perfectly match your requirements.